Criticisms of behavioural theory

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Criticisms of behavioural economics

Critics of behavioural economics offer several arguments against
the application of behaviour economics to public policy. Firstly, the
use of small nudges
might not be as effective as more traditional blunt-weapon policies, including
raising taxes to deter unwanted behaviour.

Small nudges are not enough

There is school of thought that many of the well-established and
tried and tested policies which behavioural economics has challenged (by
suggesting that small nudges are better than large scale interventionist measures)
provide more effective types of behaviour change. For example,
some
argue that higher fuel taxes yield a better result than small nudges
towards better environmental decisions. Other critics argue that much
of the impact of nudge-type policy is short term, and does not lead to
long lasting changes in behaviour.

One
of biggest critics of behavioural economics,
Gerd
Gigerenzer, of the Centre for Cognition and Adaptive Behaviour at
the
Max Planck
Institute is critical that, paradoxically, the
default view of behavioural economists is that humans are generally easily manipulated and easily
yield to biases and distortions. He goes further to suggest that
decisions based on heuristics and rule of thumb influences can be just
as valid as those shaped by a more rational approach. What Gigerenzer
proposes is that individuals are provided with more opportunities to
learn the skills of critical thinking, especially when making complex
financial decisions, as well as promoting the use of risk averse rules
of thumb like ‘if it sounds too good to be true it probably is’.

The problem with experiments

A further criticism is that interventions suggested by the results
from controlled lab experiments may not necessarily work as effectively
in the real world. Small nudges might work well under controlled
conditions, but will be subject to much more 'interference' when tried
in 'live' situations. It is possible that the effect of subtle nudging
is so small that governments have to spend much more money
implementing such policies in comparison with traditional policies.

Conclusion

Despite criticisms of the use of behaviour economics to shape policy,
one clear effect is to raise the value of the importance of controlled
experiments prior to the implementation of a new policy initiative.

There is also a feeling that behavioural economics has regenerated
interest in economics, and in public policy, and to this extent it is
making a significant impact on economic theory and policy.